TVA digs in to deliver two reactors

While the rest of the country focuses on the NRC’s approval of four new Westinghouse AP1000 reactors at two sites, the Tennessee Valley Authority has its own in-house version of the nuclear renaissance and right now it is running late.

TVA CEO Tom Kilgore told the utility’s board of directors in mid-February construction productivity is down and costs are up for completion of the 1,200 MW Watts Bar 2 reactor located in Tennessee.

On April 5, one day after this article went to press, Kilgore said at apress briefingthat TVA expects the project costs for Watts Bar 2 to increase by $1.5-2.0 billion. Also, he said the schedule will be revised with completion now set for the last quarter of 2015 compared to the original date of 2012.

Originally scheduled for completion this year, a new “estimate to complete” will push the date back by three years. Delays there mean the start and completion dates for construction of the 1,260 MW Bellefonte Unit 1 reactor at a site in Alabama will be pushed back as well. TVA’s board has mandated that only one reactor will be under construction at a time. The board said work on Bellefonte will have to wait until the first fuel load takes place at Watts Bar 2.

TVA’s Board of Directors will meet later this month to review and possibly approve the new schedule and cost estimate. However, a response from Wall Street is already public. Moody’s Investor Services warned April 11 that the higher costs to complete Watts Bar 2 could result in rate increases for electricity supplied by TVA to its customers.

Moody’s said the rate increases will be need to pay for the unanticipated construction costs. TVA CEO Tom Kilgore disputed the assessment from Moody’s saying he is confident the work to complete the reactor won’t be a rate driver.

Cost and schedule variances

TVA committed in 2007 to complete the $2.5 billion Watts Bar 2 reactor, which had been mothballed for years. Bechtel was assigned to do the work. In 2011, with slipping schedules and rising costs, TVA took back direct control of the project and hired former TVA CEO O.J. “Ike” Zeringue to supervise all engineering and construction work.

The ghosts of the bad old days from the ‘70s & 80s of spiraling out of control costs at nuclear reactor projects haunt the utility like the shadowy images in a ‘B” grade horror movie. TVA is struggling to get its arms wrapped around cost and schedule variances.

So far it has spent $2.2 billion, or 88%, of the original estimate of $2.5 billion, on the project which is only 70% complete. Watts Bar 2 was estimated to be 55% complete when work restarted on it in 2007.

According to a slide presentation (Slides 66-75) given to TVA’s board of directors in February 2012, through October of 2011 the schedule performance index for construction of Watts Bar 2 dropped as low as 0.65, which is significantly below the nominal level of 1.0. It’s a huge red flag for a capital construction project of this size.

In additional to a new leadership team, with other executives shifted or retiring, TVA’s big push is to update its project plant for Watts Bar 2 with a credible set of cost numbers and schedule dates. TVA CEO Tom Kilgore told the board he’ll have them this month.

The bad news is, according to TVA spokesperson Scott Brooks, that the new estimate at completion will exceed the original estimates. However, CEO Kilgore says he’s not abandoning ship. He pointed out to the board in his briefing the completion of Watts Bar 2 is still a bargain compared to the cost of building a new nuclear reactor from scratch.

He said the new estimate at completion (EAC) could be as high as $4.58 billion and “it would still be an economical plant.” He added a caveat he expects the EAC to be lower. Kilgore told the TimesFreePress in TVA’s home town of Chattanooga that he “does not want to be wrong [about costs] a second time.”

In response to lagging productivity numbers last October, the utility laid off 800 workers at the site which seems counter-intuitive. TVA may have hit on something and that is there may be a limit to how many people you can put on a nuclear reactor job site and not have them get in each other’s way. The layoffs reduced the workforce to about 2,500 contractors. TVA says more work is getting done now that fewer people doing it.

TVA has also blamed the delays at Watts Bar 2 on the expected regulatory changes expected to be imposed on the plant by the NRC in response to the Fukushima crisis in Japan.

Safety issues

There have been troubles with safety on the site. TVA spokesperson Scott Brooks told FCW that in September 2011 Watts Bar 2 personnel discovered that cables had erroneously been disconnected from Unit 1 equipment, which is a the operating reactor, instead of Unit 2, which is under construction, and that a valve on Unit 2 was removed from a system without following proper guidelines.

Brooks said the Unit 2 safety “stand down” was ordered stopping work for three days to assure that errors discovered are clearly communicated to all personnel and to reinforce TVA’s expectation that workers adhere to the highest standards of safety and quality.

Additionally, in a separate set of troubles that started in 2010, two men working at the site were arrested and charged with faking records for 200 inspection entries of electrical cables being installed at Unit 2. The falsified records were discovered as part of the utility’s quality assurance program and resulted in the case being turned over to the U.S. Attorney’s office.

Bellefonte gets pushed back

Like Watts Bar 2 TVA has taken the approach that completing a partially constructed reactor makes more sense than building a new one from the ground up. There’s a lot to be said for having a containment building and a reactor pressure vessel in hand to give you a running start. Last September TVA let a contract worth approximately $1 billion to Areva to provide engineering, construction, and component replacement procurement for the Bellefonte project.

TVA spokesman Brooks tells FCW that now much of the major construction activities will have to wait until Watts Bar 2 is done.

“The completion of Bellefonte Unit 1 depends on the new completion date for Watts bar 2.”

New digital control room at Watts Bar 2: (TVA file photo)

Both reactors are being built under the NRC’s old Part 50 process which requires a construction license and then an operating license. Brooks says TVA does not have a date for the operating licenses for either reactor.

Because of the delays at Watts Bar 2 pushing out the schedule for Bellefonte, on March 16 TVA laid off about 450 people, or half the work force at Bellefonte.

David Stinson, VP for the Bellefonte Project, said in a statement that the utility is “resetting priorities” for Bellefonte since it must wait for completion at Watts Bar 2.

In addition to construction work at Bellefonte, Areva also provides nuclear fuel assemblies and refueling services for TVA’s nuclear reactors.

Seeking the Browns Ferry payoff

In October 2008 TVA announced that the $1.8 billion restart of Browns Ferry Unit 1, originally expected to pay for itself in eight years, will end up paying back its costs in about 30 months or less than one-third the time. This is the type of payoff TVA undoubtedly would like to see for the Watts Bar 2 and Bellefonte reactors.

TVA’s investment in Watts Bar 2 is based on an analysis accepted by its board in 2007 that the completed reactor will generate power for less than the continued cost of buying electricity from other generators or building new fossil plants. Even with the current low price of gas, TVA primarily uses it for peak load electrical generation.

These types of calculations are at the heart of CEO Tom Kilgore’s determination to get the new estimate for Watts bar 2 right. He presents the the new numbers to the TVA board later this month. The pay back for the project in the black or the red is riding on it.

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This is my updated coverage from Fuel Cycle Week, April 5, 2012, V11:No.467, published by International Nuclear Associates, Washington, DC.